Estimates of the Elasticity of Substitution Between Imported and Domestically Produced Commodities at the Four Digit ASIC Level

This paper contains estimates made in 1977 of the elasticity of substitution between domestically produced and imported commodities at the four digit level of the Australian ASIC commodity classification then in use. The data upon which the estimates were based included series specially constructed for the Industries Assistance Commission from customs clearance records covering the period 1968-69 through 1974-75. Because this period contained a substantial movement in the real exchange rate for the Australian dollar, relatively large movements occur in the relative prices in Australia of the domestically produced and the competing imported commodities. Thus the sample period and data augured well for the estimation of Armington substitution elasticities, which was relatively successful. Note, however, that the data were not rich enough to obtain separate estimates for different sources of imports, nor for different intermediate and final uses of the commodities. The estimates served well, however, in the implementation of the ORANI model used in debate and policy formation in Australia during the 1980s. The four-digit ASIC data base used in this study was published in 1985 as Chris M. Alaouze (1985), "The Impact Trade Flow Data Base", Impact Project Working Paper No. I-24, Melbourne. This paper will be available on this web site in the reasonably near future. This data base also includes pressure of demand series for eight industry groups. These were included as regressors and found significant in the equations used to estimate the Armington elasticities for several commodities. (This abstract written in 2004 by Chris Alaouze and Alan Powell)